SHR St. Francis, LLC v. City and County of San Francisco
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The Westin St. Francis, in Union Square, is San Francisco’s third largest hotel. In return for a base management fee and an incentive fee, the Company manages and maintains the hotel, handles personnel and employment matters, provides advertising and promotional services, and provides all computer services, including reservations. In addition to renting its rooms, the Westin receives income from guest cancellations, no-shows, and attrition. The hotel also profits from in-room movies and guest laundry services provided by third parties. In 2015, BRE purchased Strategic, the owner of the Westin St. Francis and other hotels, triggering a reassessment. The Assessor assessed the hotel’s value at approximately $785 million. Strategic sought a refund. The trial court upheld the Board’s determination.
The court of appeal held that the method used by the city to exclude the value of nontaxable, intangible assets from the assessed value of the hotel—i.e., the deduction of fees or expenses associated with the asset from the hotel’s future income stream—is legally incorrect. As a result, the assessed value of the hotel improperly subsumed the value of the management agreement, in-room movies, and guest laundry services. However, the assessed value properly included the cancellation/no-show/attrition income because that asset is a taxable attribute of the property. The court remanded for a redetermination of the taxable value of the hotel.
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